Corporations, as separate legal entities, can deduct most of what they pay for outsourced functions, including space costs, as a legitimate business expense. Space costs include rent, maintenance and utilities. Payments made to most small businesses for services and space costs require reporting on a 1099. However, rental payments made to small or large businesses that are corporations do not require a 1099.

1099 Filing Requirement

The Internal Revenue Service requires that companies and individuals operating a business report any payments in excess of $600 made to individuals and small businesses for services rendered. Individuals and entities report these payments in the proper box on Form 1099-MISC. These forms must be sent out at the beginning of the next tax year to ensure that the recipients have sufficient time to prepare their taxes for the previous year. However, the IRS typically exempts any payments made to corporations, including payments for rent, from the 1099 reporting requirement.

Rent Example

If you pay $1,000 per month in rent to We Rent, Inc., a corporation, then you do not have to report any of the $12,000 in rent you paid on a 1099. However, if you also paid $500 per month to an LLC or a private individual for rent at another location, then you must report that $6,000 in rent for the year on Form 1099-MISC.

Use of Real Estate Agents

The IRS also exempts rents paid to real estate agents from requiring the issuance of a 1099. Often, corporations use real estate agents as brokers or agents for their properties. Sometimes the agent or the paperwork will instruct you to make checks out to the agent instead of to the corporation. Because payments made to real estate agents are also exempt from reporting, you do not need to complete a 1099 for those payments.

Exceptions

A couple of exceptions could cause confusion. The IRS does stipulate that you must report payments made to corporations for medical care and healthcare or attorneys fees on a 1099. Rental payments are entered into Box 1. However, medical and healthcare payments get entered into box 6; attorney fees, into box 7 or 14. Hence, if you subleased space from a medical care provider corporation or an attorney corporation, you still do not report this box 1 income on Form 1099 for those entities.

1099 Qualification

If you make rental payments directly to an individual or entity who is not an agent whom you believe is working on behalf of a corporation, you must report those payments on a 1099. If you are unsure if the company you make rental payments to is a corporation, issue a 1099 to ensure you comply with IRS regulations.

References

About the Author

Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.